Top 10 HR Mistakes Small Businesses Make and How to Avoid Them

Top 10 HR Mistakes Small Businesses Make and How to Avoid Them

The majority of your workforce costs relate to your employees. If you don’t look after your employees, they’re going to cost you a lot of money in lost productivity, potential employee claims, etc. For instance, you hire an employee without a thorough background check and down the line, an issue of dishonesty or theft arises. Or, perhaps you fail to establish a clear procedure for requesting vacation time resulting in scheduling conflicts.

These are just a few examples of how HR mistakes and oversights can snowball into bigger problems. These situations not only impact employee morale but can also result in lawsuits and hefty fines. Let's delve into the most common HR mistakes small businesses make and how you can avoid them.

1. Lack of Formal Policies and Procedures

A simple handshake agreement might work for a two-person startup, but as your team grows, clear guidelines become necessary. Although the Department of Labor doesn't demand a physical employee handbook, they require businesses to display posters covering rules like the Fair Labor Standards Act, the Employee Family Medical Leave Act, and the Employee Polygraph Protection Act. Still, it's in your best interest to put your policies and procedures in writing in an employee handbook.

How to Avoid It

Develop an employee handbook outlining work expectations, benefits, disciplinary procedures, and anti-discrimination policies. This handbook will serve as a clear point of reference for both you and your employees to ensure a fair and regulated work environment.

If you feel intimidated by the idea of creating a handbook from scratch, there are numerous resources and templates available online. The Department of Labor provides a Basic Compliance Toolkit that can help you keep your policies in line with the latest federal guidance.

2. Skipping Performance Reviews

Performance reviews are often seen as a necessary administrative hassle, something to check off a yearly to-do list. However, skipping these reviews can be a major mistake for businesses of all sizes. Here's why: Without regular feedback, employees may be left in the dark about how they’re doing, and this could hinder their ability to grow and develop in their roles.

The absence of performance reviews could also leave employees feeling unappreciated and unsure of their standing within the company. Regular check-ins demonstrate that you value their contributions and are invested in their development. Skipping reviews sends the opposite message, potentially leading to decreased motivation and engagement.

How to Avoid It

Schedule regular one-on-one meetings with each employee, ideally quarterly or bi-annually. Develop a clear performance review structure that includes both self-assessment and manager feedback. Focus on specific examples and actionable steps for improvement.

3. Poor Hiring Practices

A bad hire can be incredibly disruptive and costly. Rushed hiring practices often lead to bringing on board individuals who aren't a good fit for the company culture or lack the necessary skills. New hires who lack the required skills may struggle with the workload and will take longer to become productive members of the team.

This can slow down overall team progress and strain resources. A bad hire can also negatively impact the morale of existing employees. Imagine working alongside someone who doesn't pull their weight or creates a toxic work environment.

How to Avoid It

Take the time to write clear, concise job descriptions that accurately reflect the role's requirements and responsibilities. Go beyond just technical skills – look for cultural fit and a strong work ethic.

Utilize a structured interview process that involves a diverse panel and allows for in-depth discussions beyond just resumes. Conduct background checks and reference calls to verify qualifications and experience. Remember, hiring is an investment – take the time to do it right.

4. Not Updating Employee Records

As your business expands, so do your HR responsibilities. With a limited HR team, it's easy to get bogged down by paperwork, leading to the unfortunate oversight of outdated employee records. For instance, a recently promoted employee might still have their old salary and title listed in the system.

This mistake can be costly, forcing the company to pay back wages and potentially face legal repercussions. More importantly, it can damage employee morale if they feel their achievements haven't been recognized. Maintaining accurate records ensures a smooth operation and demonstrates respect for your valued workforce.

How to Avoid it

Automate what you can. Utilize HR software or outsource your HR functions to a PEO firm for effective recordkeeping. Many offer features for storing employee information, tracking changes, and sending automated reminders for updates. Don't wait for a crisis before reviewing employee records. Conduct regular audits (quarterly or bi-annually) to identify and address any discrepancies.

5. Inadequate Training

It is important to provide new hires with a great onboarding experience. Inadequate onboarding and training leads to confusion, wasted time, and a higher likelihood of errors. When new employees are thrown headfirst into their roles without proper guidance, they take longer to become productive. They may feel unprepared and unsupported and are more likely to leave for greener pastures.

How to Avoid it

Forbes reports that 77% of new hires with official onboarding programs hit their first performance milestone. So from day one, develop a clear plan that includes introductions to key team members, a tour of the workplace, and an overview of company culture and expectations. A well-structured onboarding program helps them feel welcome, valued, and confident in their abilities, ultimately leading to higher retention rates.

Provide essential tools and resources to get new hires started and schedule regular check-ins to answer questions and address concerns. Pair new hires with experienced colleagues who can provide guidance and support. This allows for one-on-one coaching and fosters a sense of community within the team.

6. Non-Compliance with Laws

Compliance involves a lot of things, including but not limited to safety, wages, hour requirements, employee benefits and leave, data privacy, and security. Some common compliance mistakes are: 

• Not paying the federally mandated minimum wage,

• Misclassifying employees as independent contractors,

• Ignoring Occupational Safety and Health Administration (OSHA) regulations, and

• Failing to safeguard customer and employee data

As a small business with tight budgets, it may not be feasible for you to hire a dedicated HR team or a legal counsel specializing in employment law. Still, you shouldn’t leave compliance issues in the lurch. Neglecting them will not just cost you money in the form of lawsuits but your company's reputation.

How to Avoid it

You can’t comply with what you know nothing about. Familiarize yourself with the employment laws of the country you operate in. Educate your team, consult with experts, and invest in proper systems to ensure you’re always on the right side of the law. 

Government websites, industry associations, and some legal aid organizations offer free resources on employment law basics relevant to your business location and industry. The U.S. Department of Labor is a great starting point, with many resources specifically geared toward small businesses.

7. Neglecting Employee Engagement

An employee is hired, they do the work they've been hired to do, the company makes a profit, and the employee gets paid. For many small businesses, this transactional view is what they think an employee's lifecycle looks like. 

In reality, employees are human beings, not cogs in a machine. They have personal lives, aspirations, and a desire to feel valued and fulfilled in their work. When these needs are ignored, a cycle of disengagement sets in. Over time, this boredom and lack of connection lead to decreased productivity, high turnover, and poor customer service.

How to Avoid it

Recognize and appreciate your employees for their contributions. Don't underestimate the power of a simple "thank you" or a public shout-out for a job well done. Create a baseline for employee engagement. Help your employees see how their contributions fit into the bigger picture and how their work makes a difference. This fosters a sense of purpose and ownership.

Provide opportunities for employees to learn new skills and develop professionally. This can include training programs, mentorship opportunities, or chances to take on new challenges within the company.

8. Underpaying Workers

As much as you’d want to cut costs, avoid the mistake of underpaying your workers. This seemingly quick fix comes with a hidden price tag - a price that can ultimately hurt your business in the long run. For example, when you offer low wages, you limit your talent pool. Top performers who feel that they’re not fairly compensated for their work seek out better opportunities. Not to mention the compliance issues you’d run into if you pay below the minimum wage that labor laws stipulate.

How to Avoid it

Conduct thorough market research to understand the prevailing wages for similar positions in your geographic area and industry. Look beyond just base salary. Consider offering benefits like health insurance, paid time off, or flexible work arrangements to create a more attractive total compensation package.

9. Poor Retention Planning

Constantly replacing employees is expensive. You incur costs associated with advertising, interviewing, and training new hires. A study shows that replacing a salaried employee can cost up to six to nine months of the employee’s annual salary. When experienced employees leave, they take their institutional knowledge and expertise with them. This creates a gap in skills and know-how that can take time and resources to replace.

How to Avoid it

One way to avoid this mistake is to invest in employee engagement. Build a positive work environment that encourages open communication and acknowledges employee contributions. Regularly conduct anonymous employee surveys to gauge engagement levels, satisfaction with company culture, and identify areas for improvement.

10. Poor Job Descriptions

When you offer a new talent a new job, they are excited to join the team. The contract is signed, and everyone's happy. But down the road, performance issues arise, and finger-pointing begins. Employees might blame inadequate tools, a difficult market, or unclear expectations. You might end up questioning if they were the right fit for the role to begin with.

Without clear job duties and expected competencies outlined, it's easy for misunderstandings to arise. Job descriptions set clear expectations from the very beginning, ensuring everyone's on the same page about responsibilities and performance benchmarks.

How to Avoid it

Craft clear job descriptions from the start. Clear job descriptions set expectations from the very beginning, so you and your new hires can focus on success, not misunderstandings. Outline core duties, the skills you need to see, and other necessary information. Use strong verbs to paint a picture of what this role looks like day-to-day. Keep it concise and readable – you want to attract top talent, not overwhelm them. 

Partnering for Success

Managing HR effectively takes time, expertise, and resources. However, small businesses might not have the bandwidth for a dedicated HR department. Consider outsourcing some HR functions to a Professional Employer Organization (PEO) or consulting with an HR professional like The Mission. We can provide valuable guidance and help you effectively manage the HR aspect of your business. Feel free to contact us to discuss how we can move your business forward.